Behind the scenes: What led to Cyrus Mistry ouster

"Tata Power is a cash guzzler but generates very little profit. Yet, when it's embarking on its biggest buyout, a principal shareholder is kept in the dark."Baiju Kalesh, Kala Vijayraghavan&Arijit Barman | ET Bureau | October 25, 2016, 08:05 IST

The creation of the Group Executive Council (GEC) as Mistry's main brain trust had upset many in Tata Sons who perceived it as a parallel power centre.MUMBAI: It was a sombre Sunday.

A day before the Tata Sons board met on Monday, Harvard Business School dean Nitin Nohria met Cyrus Mistry for more than two hours where he conveyed a message from Tata Trusts Chairman Ratan Tata about what might come up for discussion at the meeting.

On Monday evening, the Tata Sons board’s announcement took everyone by surprise, but the die had been cast some months ago. On August 26, the board was expanded by inducting Piramal Enterprises Chairman Ajay Piramal and TVS Motor Chairman Venu Srinivasan. The appointments were seen as a move to tighten the grip of Tata Trusts over the Tata Sons board chaired by Mistry.

Sources said Mistry was not even consulted on these appointments, reflecting the simmering discontent between Tata Trusts and the chairman.

The philanthropic trusts — including the larger ones like Sir Dorabji Tata Trust and Sir Ratan Tata Trust — together control about 66% of Tata Sons, the group holding company that was created by the families of the sons of founder Jamsetji Tata, and are still largely under the family’s grip.

This in many ways was payback time, felt Tata Group watchers. Just two months ago, in June, Mistry had cleared Tata Power’s $1.4-billion acquisition of Welspun’s solar farms without seeking approval from either Tata or other key shareholders.

“Tata Power is a cash guzzler but generates very little profit. Yet, when it’s embarking on its biggest buyout, a principal shareholder is kept in the dark. That’s unprecedented in Bombay House (Tata Group headquarters),” said an old-time group insider.

In 2011, when Ratan Tata cherry-picked Mistry, it was seen as the victory of youth. “Be your own man”, was Tata’s advice to his then 43-year-old successor.

But soon, youth was perceived as insolent, precocious and out to destroy “the core values that the group stood for, for close to 148 years.”

Take, for example, the centenary celebrations of Shapoorji Pallonji two years ago. According to a leading industrialist, while everyone from India Inc was invited to the event at the National Centre for the Performing Arts, Ratan Tata was not to be seen. He was, in fact, dining at Thai Pavilion with Cyrus’ first cousin. To many, it looked odd, since Tata should have been a part of the celebrations.

There was a fundamental disconnect between Mistry and Tata, particularly with regard to ethos, values, vision and the direction that the group was headed in. Detailed letters were sent to Mistry asking him to spell out his vision, five-year plan, etc, but the responses were vague and non-specific. Things got aggravated as the chairman of Tata Sons and Tata Trusts were not the same individual. The former was not a Tata family member but represented the single largest shareholder while the latter was custodian of a century old legacy. "Confrontation was inevitable," felt a Mumbai based CEO of a global investment bank who has been working closely with the Tata Group for over two decades.

Several of Mistry’s decisions, including the disposal of some of Indian Hotels Co’s overseas properties and especially the move to shut the UK steel operations, did not go down well with Tata Trusts. Many were considered Ratan Tata’s legacy that helped the group revenues top $100 billion even if it left the group hamstrung with ballooning debt burden. Mistry’s war on the legacy of the old guard, and the comment about the necessity of ‘tough love’ within the organisation was considered overtly aggressive and unnecessary.

Tata Trusts were of the view that the group under Mistry had not been able to take into account the sensitivity of shareholders as well as the global ecosystem in which the group companies operate. “Tata Steel could have been handled better and blunt decisions could have been avoided,” a person close to the development said. The move to shut the UK steel business had come in for heavy criticism in Britain.

“Tata was unhappy with the decision to shut down or sell the group’s steel business in Europe,” said a person close to Tata. “He wanted the group to turn around the loss-making business rather than sell it.”

Similarly, the decision to get embroiled in a high-decibel, full-blown legal battle with NTT Docomo and challenge the $1.2-billion international arbitration court’s order that went against it was seen as breach of faith by many Tata old-timers. “Tata had made a promise to Docomo that he’ll protect their investment in India. Come hell or high water, it would have been fulfilled. It’s about the spirit over subject here,” added another old Tata executive on condition of anonymity. Matters had come to such a pass that Tata himself met the Japanese ambassador to India in Mumbai in August, requesting a diplomatic intervention. But his efforts were scuppered by Mistry’s continued belligerent stance.

Tata’s sub-scale telecom operations are a classic case of Mistry’s centralised micro-management, a direct fallout of which was the collapse of negotiations with Vodafone, even after the senior leadership from both sides got personally involved.

Mails to Tata Sons, Nitin Nohria and Lord Kumar Bhattacharyya did not generate a response.

The earliest signs of strain between Tata and Mistry were evident when he sacked Indian Hotels managing director Raymond Bickson in 2014. Bickson, perceived to be close to Tata , was replaced with Hyatt veteran Rakesh Sarna. Matters worsened when Mistry continued with Sarna despite alleged complaints against him.

“Mistry’s eye for talent is also being questioned. The people he has hired are not inspirational leaders, just individuals,” said a former Tata Motors executive. But the crucial post of the Group CFO remained vacant for almost 3 years after the retirement of Ishaat Hussain.

The creation of the Group Executive Council (GEC) as Mistry's main brain trust had upset many in Tata Sons who perceived it as a parallel power centre. Only a handful of its members had actual operational experience of running a business. Most of Mistry’s key advisers, including Madhu Kannan, NS Rajan, Nirmalya Kumar, were also shown the door along with him.

Mistry’s critics point out that he did not relinquish his Irish citizenship though as Tata Sons chairman he should have. Concerns were also voiced about conflict of interest regarding award of contracts to construction companies of the Shapoorji Pallonji Group even after Mistry took over. This, many feel, gave more ammunition to Tata Trusts to strike back.

At a stormy Tata Sons board meeting on Monday, other than Ishaat Hussain and Farida Khambata who abstained, the rest voted for the chairman’s ouster. Mistry himself voted to stay. But since early afternoon, WhatsApp messages to senior Tata employees talked of a big-bang announcement. Meanwhile, most of the Group Executive Council members abruptly left an in-house event, adding to speculation, said company officials.

"But in the end it was a coup that was planned to perfection and executed to the tee," quipped an old Tata hand.